Shale producer Devon Energy in bid to acquire Enerplus -sources

Enerplus

08/02/2024 17:58

(Adds Kimmeridge statement in para 6, updates share prices)
    By David French
       Feb 8 (Reuters) - U.S. oil and gas producer Devon Energy
 DVN.N  has approached Enerplus  ERF.TO , a peer with a market
value of C$4 billion ($3 billion), with an acquisition offer,
people familiar with the matter said on Thursday.
    Such a combination would continue the dealmaking spree seen
in the North American oil patch in recent months, which has
included many of Devon's rivals -- including Exxon Mobil
 XOM.N , Chevron  CVX.N  and Occidental Petroleum  OXY.N  --
making major acquisitions.
        There is no certainty that Devon and Enerplus will
negotiate a deal, the sources said, requesting anonymity because
the matter is confidential. Devon's proposed acquisition terms
could not be learned.    
    Devon declined comment. Enerplus did not immediately respond
to a request for a comment.
    Enerplus shares were trading at 12.32 p.m. Eastern time 8.3%
higher at C$20.87 on the news. Devon Energy shares rose 1.8% to
$42.06.
        "Any potential transaction for Enerplus would need to
reflect the quality of their remaining core inventory in the
Bakken," said Mark Viviano, managing partner and lead portfolio
manager at Kimmeridge Energy Management.
  
        The activist investment firm is the second-largest
Enerplus shareholder with a 3.82% stake, per LSEG data.
  
    The hunt for better reserves and economies of scale has
fueled consolidation in the U.S. oil and gas sector over the
course of the past year. Exxon agreed to pay $59.5 billion for
Pioneer Natural Resources  PXD.N  and $4.9 billion for Denbury.
Chevron inked a $53 billion deal for Hess  HES.N  and bought PDC
Energy for $6.2 billion. Occidental clinched a $12 billion deal
for CrownRock.
    Enerplus operates mainly in the Bakken Basin in North
Dakota, and also has a footprint in the Marcellus shale region
in Pennsylvania. Were a deal to materialize, it would complement
Devon's existing presence in North Dakota and reduce its
reliance on the Delaware Basin in Texas and New Mexico. 
    Headquartered in Calgary, Enerplus sold its Canadian assets
to Journey Energy  JOY.TO  and Surge Energy  SGY.TO  in 2022 to
focus on its more lucrative U.S. acreage.
    The bet has paid off, generating strong cash flow and
allowing Enerplus to return $307 million to shareholders in
2023. The company has said it expects to return approximately
70% of its free cash flow to shareholders through share buybacks
and dividends in 2024.
    Enerplus shares have underperformed many of those of its
peers, however, as investors fret about the company spending
more to generate the same levels of production. Its capital
spending totaled $532 million in 2023, up from $432 million in
2022.  
    Prior to news of the potential deal with Devon, Enerplus
shares had dropped 18% in the last 12 months, compared to a 6%
drop in the S&P 500 Energy Index. 
    Devon's shares have performed even worse, down 34% in the
last 12 months. The Oklahoma City-based company, which has a
market value of $26 billion, has also been grappling with high
production costs and has struggled to meet its performance
goals.  

 (Reporting by David French in New York; Editing by Mark Porter
and Chizu Nomiyama)
 ((Greg.Roumeliotis@thomsonreuters.com; +1 646 223 6022; Reuters
Messaging: greg.roumeliotis.thomsonreuters.com@reuters.net))